Pre-construction Acquisition in ThailandJan 20, 2010
Pre-construction acquisition is defined as the innovative practice of purchasing real properties at a very early stage of their development with the aim of mitigating the risks involved in construction. There are a variety of reasons why a lot of people have resorted to this practice but the main consideration has always been the opportunity to obtain lower price rates and discounts. Another reason is the fact that most people prefer newly built constructions over existing ones as the latter would usually entail decorating and renovating expenses. Others resort to this practice simply because of the security it offers as a number of these newly built homes come with a warranty. But for whatever reason an individual may decide to buy, one thing is certain, it is that pre-construction acquisition is one of the most popular and accepted way of acquiring real property not only in Thailand but in other countries as well.
Timing is crucial in pre-construction acquisitions. It determines not only the probable price of the unit but also the possibility of having a say in its construction. Buying a unit before the actual start of construction usually leads to a lower price. It also gives the buyer the full opportunity to modify his unit by availing of upgrades and customizations. However, the disadvantage of acquiring the property too early in its development is that the dealer might increase the initial price agreed upon if he or she determines that the need arises. Furthermore, the buyer would not be able to enjoy living within his unit immediately as it has yet to be constructed. Coming late into the construction project on the other hand would enable the purchaser to occupy his unit immediately but this would also entail little or no say in its design. Instances have occurred where most of the units sold in a particular development project have had the same basic design bearing little or no variation at all.
Thailand preconstruction acquisition operates much like any other investment plan. It begins with the developer’s project proposal wherein the details of the proposed construction project are laid down and established. The developer would then solicit funds from potential clients by offering them units at discounted or pre-selling prices. It is at this stage of the operation that purchasers become acquainted with preconstruction acquisition. Most potential buyers are only provided with an architectural rendering of the proposed building and its basic floor plan. Variations and special add-ons are usually offered in packages bundled with the basic units.
Initial payments in preconstruction acquisitions involve a preliminary deposit ranging from five (5%) to ten (10%) percent of the total cost. This enables the buyer to reserve the property without having to pay the entire sales price. Deposits are usually placed in an escrow account to be held by an independent third party while construction is on-going. It is a customary practice between a developer and a buyer to enter into temporary and transitional contracts prior to the completion of the construction and the full payment of the purchase price. Note that these intermediate agreements do not generally bind both parties as the buyer is given the opportunity to renege on his obligation while the developer has the option of increasing the initial purchase price. So there are still questions as to the legal effect of such documents.
After having accumulated a sufficient amount of investment funds, the developer then sets out to look for a suitable construction company that would undertake the construction project. The period for construction depends entirely on the kind of project being built. On the average, it takes about six (6) months up to two (2) years for a project to be completed. Allowances with regard to the construction and development schedule should be taken into account as difficulties and fortuitous events may eventually arise. It is advised that buyers refrain from making unrealistic and exaggerated expectations about the construction process as this might only lead to disappointment.
It should be noted here that there are normally concerns when a developer is solely relying on buyer’s funds in order to start the project. This lack of equity may be a concern as unlike funds obtained from institutional loans, such funds are not regulated and is subject to certain mismanagement. Ideally a project should either be funded entirely through institutional financing or internally. Not more than half of this should be reliant upon buyer’s funds.
Problems might arise in the interim that may result in making the purchase an inconvenience rather than a valuable acquisition. In such situations, the buyer may exercise his or her option of either rescinding the existing purchase contract with the developer or assigning his or her right over the unit to another. In both situations, the nature of a pre-construction acquisition as an investment scheme is made manifest. The buyer may eventually expect a reasonable return on his or her unit despite the low deposit price paid while averting any possible risk in the future.
In summation, pre-construction acquisition is fast becoming one of the most popular forms of real property investment. Its versatility and risk mitigating aspect has made it an enticing venture for those who desire to have their own property but lack the necessary funds or are cautious of the risks involved in land ownership.